This article was originally published in the January/February 1999 issue of Home Energy Magazine. Some formatting inconsistencies may be evident in older archive content.

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Home Energy Magazine Online January/February 1999

trendsin energy

Utilities Unplug Efficiency Programs

Between 1993 and 1997, U.S. utilities cut their combined investment in energy-saving programs by 45%--or $736 million--largely in response to industry deregulation. That's the conclusion of a report released last October by the Environmental Working Group and the World Wildlife Fund titled Unplugged: How Power Companies Have Abandoned Energy Efficiency Programs. The cuts in efficiency programs meant that consumers spent $1 billion more on electric bills in 1997 than they should have.

The federal 1992 Energy Policy Act set the stage for the deregulation of the electric utility industry. That year, the utilities surveyed in the report projected a savings of 19 billion kWh from their efficiency programs for 1997. Thanks to the cuts in those programs, actual savings in 1997 amounted to only 4.5 billion kWh. The higher energy use lead to power shortages during peak demand periods for customers of certain utilities. This past June, two utilities that had slashed their efficiency spending, Commonwealth Edison of Chicago and American Electric Power, had to ask their customers to cut daytime power use during the height of a heat wave. Public Service of Colorado, which in 1997 spent just 0.2% of its total revenues on efficiency programs, had to institute rolling blackouts to cope with summer energy use.

Unfortunately, Public Service of Colorado is not alone in allocating such a tiny percentage of revenues to efficiency programs. Fifty-two utilities, each of which had revenues of over $1 billion, spent less than 0.5% of their revenues on efficiency programs in 1997. Thirty-eight other large utilities slashed their energy efficiency budgets by from 98 to 50 percent. Even leaders in implementing outstanding energy efficiency programs, such as the Sacramento Municipal Utiltity District (SMUD), are cutting efficiency funding. In 1997 SMUD spent $17 million, or 2.4 percent of its revenues, on energy efficiency. Two years earlier SMUD had allocated $38 million for efficiency programs.

While cuts in energy efficiency programs are driving utilities to buy or produce additional power, deregulation is prompting utilities to search out cheaper and cheaper sources of electricity--and cheaper power often equals dirtier power. According to the report, Detroit Edison, which entirely eliminated its efficiency program in 1997, is petitioning to start up the Conners Creek power plant without installing modern pollution control equipment. Illinois Power, which killed its efficiency program in 1994, recently announced plans to reopen five oil-burning units that had been closed since 1996.

Some states are working to ensure that energy efficiency programs will not be completely abandoned under deregulation. Eleven states have established or are establishing public benefits funds that support efficiency programs. These funds are generated from surcharges on consumers' electric bills. Other states are considering including such funds as part of their deregulation legislation. Massachusetts's public benefits fund receives 3% of revenues--the highest funding level yet established. At the other end, in Illinois only 0.1% of revenues are set aside for the public benefits fund.